Protecting your future: Estimates in estate battles can vary greatly

When you hear the phrase "estate battle," the first thought is often a fight among family members over an inheritance. Sadly, in the tumult of a loved one's death, it is not uncommon for even close relatives to disagree sharply over how assets should be divided.

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By Bonnie Kraham

recordonline.com

By Bonnie Kraham

Posted Feb. 20, 2014 at 2:00 AM

By Bonnie Kraham

Posted Feb. 20, 2014 at 2:00 AM

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When you hear the phrase "estate battle," the first thought is often a fight among family members over an inheritance. Sadly, in the tumult of a loved one's death, it is not uncommon for even close relatives to disagree sharply over how assets should be divided.

However, estate fights may also center on legal problems related to taxes and the IRS. Tax matters are intricately woven into estate matters and, when problems arise, you can be sure that the IRS will be ready to defend its position in court.

To understand how these IRS estate battles often play out, one need look no further than continued wrangling over perhaps one of the largest estates in recent memory. Famed entertainer Michael Jackson died in 2009. However, the estate is still fighting with the Internal Revenue Service regarding the amount of estate tax owed.

The IRS and Jackson's executors are miles apart on what is owed. The executors claimed that Jackson's net worth at the time of his death was $7 million. The IRS, on the other hand, valued the estate exponentially higher, at just over $1 billion dollars.

The estate tax is based on the total value of assets at the time of death. For its part, the IRS claims that the total estate tax was worth more than $505 million. In addition, it claims that errors with the tax return trigger double penalties, adding about $197 million in penalties, for a total tax obligation of about $702 million. The IRS proposed tax bill alone is one hundred times as large as the executors' calculation of the estate value.

How could the two amounts be so different? Apparently, the main dispute surrounds the value of Jackson's "image" and his rights to a valuable trust that holds rights to legendary songs, including almost the entire Beatles collection. The executors argued his likeness was worth $2,105 and that Jackson had no financial interest in the song collection because he had borrowed hundreds of millions of dollars against it.

For intangible assets without a clear value, disputes often arise between the IRS and an estate. While very few will leave an estate or assets as large, or unique, as did Michael Jackson, the issue of proper appraisals and the subsequent tax burden is not uncommon.

As always, advance planning is the best approach to estimate the value of assets in an effort to avoid court battles, attorney fees and an unexpected estate tax burden.

Bonnie Kraham is an attorney practicing elder law estate planning with Ettinger Law Firm, 75 Crystal Run Road, Town of Wallkill. She can be reached at 692-8700, ext. 119 or at bkraham@trustlaw.com. This column is intended to provide general information, not legal advice.